As a business owner, you know that conflicts can arise between shareholders and the management team at any time. One such conflict can occur between the shareholders` agreement and the articles of association. In this article, we`ll explore the differences between the two documents and how such conflicts can be resolved.

What is a Shareholders` Agreement?

A shareholders` agreement is a legal document that outlines the rights and responsibilities of shareholders in a company. It`s a private agreement between the shareholders and is not required to be filed with the Companies House (in the UK). The shareholders` agreement is typically used to provide additional protection and clarity to the shareholders in areas that may not be covered by the articles of association.

What are Articles of Association?

Articles of Association are the legal documents that set out the rules for running a company. They are a public document that is filed with Companies House during the company`s registration process. The articles of association typically cover the company`s internal structure, management, and administration.

Conflict between Shareholders` Agreement and Articles of Association

In some cases, the clauses in the shareholders` agreement may conflict with the articles of association. The most common areas of conflict include:

– Transfer of shares: The shareholders` agreement may specify restrictions that are not explicitly stated in the articles of association.

– Appointment of directors: The shareholders` agreement may have provisions for appointing directors that are not consistent with the articles of association.

– Decision making: The shareholders` agreement may set out different voting mechanisms that are not in line with the articles of association.

Resolution of a Conflict

In the event of a conflict, it is important to first review both documents to identify the discrepancies. If the conflict cannot be resolved through discussions between the parties involved, legal advice should be sought. In some cases, it may be necessary to amend either the shareholders` agreement or the articles of association to bring them in line with each other.

Conclusion

The shareholders` agreement and articles of association are both crucial documents for any company. They help to provide clarity and structure to the organization. However, conflicts can arise between the two documents, leading to confusion and potential legal issues. As a business owner, it is important to review both documents regularly to ensure consistency and avoid potential conflicts. In the event of a conflict, seeking legal advice is the best way to resolve the issue.